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ALEX BRUMMER: Europe bids to slam the brakes on inflation

ALEX BRUMMER: Pressure on the Bank of England mounts as Europe seeks to curb inflation with 0.75% rate hike

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The European Central Bank is not known for bold moves. The decision to raise key interest rates by 0.75 percentage points is a win for the hawks and reflects concerns about a falling euro amid fears that inflation could spiral out of control.

Isabel Schnabel, the influential German member of the ECB’s Governing Council, has long argued for stronger moves, in line with Berlin’s historic fear of monetary easing.

Even after the final decisive step, and ECB President Christine Lagarde’s promise that more will come as Europe’s energy crisis deepens, the country is still lagging behind the US and Britain.

The ECB's decision to raise key interest rates by 0.75% is a win for the hawks and reflects concerns about a falling euro amid fears that inflation could spiral out of control

The ECB’s decision to raise key interest rates by 0.75% is a win for the hawks and reflects concerns about a falling euro amid fears that inflation could spiral out of control

The caution reflects political turmoil in Italy, where 10-year government bond yields are at 3.858 percent – ​​more than twice that of Germany.

By raising interest rates by three quarters of a point, the ECB is following the steps of the US Federal Reserve, which has raised interest rates by that amount on two consecutive meetings.

Where is this at the Bank of England? So far it has been more cautious. In August, it raised bank interest rates by 0.5 percentage points to 1.75 percent, amid a bleak forecast that inflation would climb to 13.3 percent in the fourth quarter. There will be new arithmetic at the scheduled meeting next Thursday.

Liz Truss’s fiscal expansion – to pay domestic energy bills – of £100bn or more means monetary policy will have to exert more pressure to lower the cost of living.

This is despite the fact that the energy price cap should lower forecasts of headline inflation by up to 5 percent.

Oddly enough, the detailed budget calculations won’t be seen until after the MPC meets.

The direction of travel is clear and the temptation to accelerate the pace of tightening to 0.75 percentage point will be great. The return for the Truss government’s robust support for an independent bank may well be to take bold action.

repair shop

It should be a great relief that after Melrose’s acrimonious £8bn takeover in 2018 of totem British engineer GKN by Melrose, the group’s innovative motorcycle division is returning to London markets.

In a break with the past, Melrose’s top team, led by Simon Peckham, has decided to do the splits and float GKN Automotive early next year.

The plan is to continue regardless of market conditions. It should enter the FTSE 100 with an early valuation of over £4 billion.

Melrose became a stock market favorite by buying underperforming engineers, giving the private equity treatment by extracting costs and selling them on to foreign buyers. It operates a corporate version of the BBC’s The Repair Shop.

Incentive schemes mean top management is among the best paid in Britain.

The decision to bring the company to the London market, following the disappointment of the first public offer for Glaxo’s healthcare branch Haleon, is commendable.

GKN Auto is a world leader in powertrain technology for electric vehicles, which are among the fastest growing sectors of the UK and overseas car market.

As a tech leader in the sustainable sector of the automotive market, it should be a good fit with investment funds.

Also in the mix is ​​the GKN Powder Metallurgy company, at the cutting edge of developing magnet technology for use in fuel cells.

At present, Melrose remains with GKN’s aerospace division, which makes advanced components for defense and civilian aircraft, with a legacy dating back to the Spitfire.

A sale is limited by terms agreed with the government at the time of the GKN bid. It could become the subject of an investigation under the Investment & Security Act if it were a foreign buyer. There is still much to play for.

Endgame

The departure of top mandarin Tom Scholar, guardian of fiscal orthodoxy and hero of the financial crisis, has been swift and brutal.

Kwasi Kwarteng wielded the ax on his first full day as chancellor. The break with the tradition of continuity in the civil service is reminiscent of Terry Burns’ departure from the Treasury within a year of the arrival of Gordon Brown and Ed Balls in 1997.

In the age of social media, life moves much faster.

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